Bank of Canada hints it could hike rates even if NAFTA collapses

REGINA, Saskatchewan (Reuters) - A senior Bank of Canada official on Thursday indicated the bank might have to hike interest rates even if talks to renegotiate the NAFTA trade pact fail, saying protectionist measures could boost inflation.

Senior deputy governor Carolyn Wilkins - speaking a day after the central bank held rates steady - reiterated that more hikes would be warranted to keep inflation on target. The bank’s main goal is to keep inflation at 2 percent.

Talks to update the North American Free Trade Agreement are continuing in Washington and Wilkins said the bank might be faced with a complex monetary policy trade-off if they failed. On the one hand, the collapse of the pact could hit wages, income and growth as higher tariffs kick in, she said.

“On the other hand, protectionist measures create risks to the upside for inflation, especially when the economy is operating near full capacity. In weighing these trade-offs, you can be sure that Governing Council will not lose sight of our primary mission,” she said in the prepared text of a speech.

“Low and stable inflation will help reduce at least one source of uncertainty for companies and households,” she added. The bank has raised rates four times since July 2017 as the economy gains strength.